What are your views on the resiliency of the banking and payment sector and the role technology plays in this resiliency?
UZOMA DOZIE Looking back 20 years, we see how banking has evolved and responded to market conditions. When I returned from university abroad, I was using point-of-sales terminals, a debit card, and a credit card; however, all that was available in Nigeria was basic current accounts and saving schemes. Today, we are doing more things in payments from an innovative perspective than a UK high street bank. For example, in Lagos, I do not have to carry a card or cash and can make payments through mobile or do transfers instantaneously, which I cannot do in most places in Europe or the US. We also reach more people in urban areas in a cost-effective manner through not only banks but also organizations such as PAGA, which do not have physical locations to serve people but leverage mobile solutions technology. It took Diamond Bank 23 years to acquire 7 million customers using 300 branches while in the last two years without any new branches we acquired another 7 million customers via partnership and collaboration. We have had to evolve the business to increase our market share. This is why we moved to a mobile philosophy; this is the future. From that perspective, we are resilient and also forward looking; we look at what the customer will want in the future in order to build our solutions around that.
VALENTINE OBI The banking sector in Nigeria has seen a tremendous uptake in electronic transactions, not only by design but because the sector truly does not have a choice. We have an extremely sophisticated customer base in Nigeria today. Banks have taken the initiative and changed as people come up with innovative solutions that disrupted the market, which is what is happening today. Smart banks today are beginning to deploy technology to reach the end user in a way that solutions are built around them. Mobile technology has become part and parcel of everyday life; this is why many things are happening around mobile technology, and we will see many more things, especially with the Internet of Things (IoT) coming in the future as Nigeria adopts such solutions. Continuing to run a cash-based economy is too expensive for the customer and the country. It is important that we begin to change. We will learn from the mistakes made in Europe and the US and try to correct them with some of the technology being deployed today. The IT departments of banks used to be inconsequential departments, but today this has changed and they have become mainstream.
Are we moving toward a cashless society?
TAYO OVIOSU We are, though it will take longer than anticipated. Until the central bank issues money digitally and does away with physical notes, we will always need physical notes alongside digital because fundamentally cash will always have to enter a system to be digitized and needs to come out as well. In the foreseeable future, a physical distribution network of services will be needed in Nigeria and similar countries. In Nigeria, for example, we cannot have manned branches due to the expenses involved. It will instead be via a network of agents such as independent retailers or stores that one can go to for financial services. That is what PAGA has focused on: a distribution network that accesses the mass market where people can go to open an account, receive a loan, pay their internet bills, or access services that they want and bring them into the digital sphere. In the last four years, we have acquired around 2 million customers every year and have seen people doing transactions at those locations as well as digitally as well. Nigerians are underbanked in terms of the services available and in terms of competition between banks and more can be done around driving differentiation among banks. There are still many issues around banking that need to be resolved; however, I see us moving toward digital, and I see the adoption happening.
What is the competitive relationship in Nigeria like between tech companies and banks, and is there room for collaboration?
Juliet Nwanguma Currently the buzzword in the payment industry is “fintech." Everyone is talking about fintech at every corner and looking to create a niche for themselves with various product offerings. The banks in Nigeria equally are playing in this space as they have always been during the era of e-banking. However, the fintech companies are truly differentiating themselves with their unique product offerings and lean structure within their organizations, being dynamic and making decisions quickly. So far in the market, I have seen more of a collaborative relationship between banks and fintech companies than a competitive one. From my point of view, there should be no basis for competition between the banks and the tech companies in the market because fintech companies and banks complement each other in the role each plays in a payment transaction—one provides ways to pay such as the debit card while the other provides places to pay like e-commerce websites through payment gateways. It is important that each party performs their own roles efficiently to provide an excellent payment experience to the customers. Banks are excited about the fintech space; however, my advice would be to focus on their core businesses ensuring that their role in the payment systems is working. The key thing is for tech companies to collaborate with the banks and vice versa, leveraging each other's strength and weakness. For example, PAYU is extremely particular about failed transactions and the reason why the transaction failed. This is because conversion rate in payment matters to us. We use our technology to monitor transactions at every step and available data to analyze reason for failures. Banks truly need to work on their payment card processing to ensure that their customers have an excellent online experience. Merchants want to accept payments and are keen to adopt technology while cardholders only want to make payments. Unfortunately, for certain banks their cards do not work, they fail and it is our duty to collaborate with them to ensure their cards work which will ultimately help to improve and grow the entire payment ecosystem.
OSCAR ONYEMA A number of speakers have spoken on payment systems; however, the core financial service that banks should provide is lending. Banks have to truly improve on lending or they will lose out to fintech companies. Globally, there are several megatrends that drive the uptake of fintech in addressing this issue from digitalization and big data to IoT. In Nigeria, based on the penetration of telecoms and the use of data, it is unquestionable that a bank must deploy technology to reach the population. SMEs need a large amount of funds, which is something they do not have. However, there are new solutions to provide finance to manage receivables, for example. Traditional models are being challenged around the world, and it is a matter of time before it reaches Nigeria; therefore, we have to be prepared. While payment systems are growing within the banking system, for banks to be truly resilient, they need to find new ways to provide lending. We have to find new ways to provide capital to firms seeking equity. Some of the things we are doing include automating our entire ecosystem, from generating orders and inputting through order management systems to the matching of trades to post trade linkages with banks that do trade settlements and then do billing. The next step is seeking investors who can use mobile credit to purchase securities and drive the capital-raising efforts both from the debt and equity ends.
MUDA YUSUF If we take a snapshot of all the sectors of the Nigerian economy, it is clear that the financial services sector has provided undisputable leadership when it comes to the application of technology. In the West African sub region, for instance, the presence of Nigerian banks across the region revolutionized the banking system. Banks were amazed by the solutions and technology that Nigerian banks brought to the West African region. In many sectors, players in the economy worry about the presence of foreign investors because they fear they will come with superior technology. But, there is no such concern in the financial services sector as technology application is already high. However, one of my concerns with the current fast pace of technology applications is the risk of exclusion of the large informal sector in Nigeria. Penetration is still low in this segment of the economy. There are challenges of trust when it comes to adoption of technology applications, especially in financial transactions. Many still want to see and feel the physical cash in the transactions. The social dimension to this is the implication of fintech for job losses as the application of technology solutions tends to result in increasing loss of jobs in the financial services sector. It may be good for the bottom line of banks, but not so good from a social perspective. The number of employees needed is shrinking even if business is growing. This is the flip side for me when it comes to technology solutions. This is not only with the banking system but also in manufacturing sector. The more technology applications, the fewer the number of workers needed, which has extremely serious implications.
UZOMA DOZIE In terms of the loss of jobs, I completely disagree. We have 15,000 employees and 5,000 core staff. In creating our proposition, which was banking to the market at the bottom of the pyramid, we had to create over 3,000 new types of bankers who could go to the marketplace and sell the solutions. There is no other way we could have employed over 3,000 employees; we are in fact creating more jobs for people at the most important part of the pyramid—the bottom. Technology in fact creates commerce, regardless of whether it is e-commerce or not. We have more people now with jobs and are providing more services than if we had only banked those in the metropolis and not gone out to rural areas. We only have to look at the number of PAGA outlets to understand how many jobs have been created that would not have existed if they had not been provided with this solution. Almost every small business customer has the problem of obtaining finance and getting money. This is where technology comes in, helping a company partner with people to make the connection in a cost-effective manner. This is where payment will always be the main driver. One of the benefits of a bank is that 80% of transactions are digital; it sits on a treasure trove of data, and it can begin to see what people are doing, allowing it to create new services. Fintech is a way for Diamond Bank to provide the best customer experience, and the best is allowing a customer to choose how and where they bank and when they want to do so. The only way to do that is via innovation and creativity, which is what we try to do.
VALENTINE OBI On the lending part one of the biggest challenges in the country is the sophistication of data. If we look at what telcos have done with their data, they can see the journey of the customer, how long they have been in place, and what they are doing in a day, week, or month. They know what they can lend. At eTranzact, we pay millions of people in terms of payroll on the platform and today banks partner with us because of that data; they know exactly how much an individual earns, which makes it easier for them to make a decision to lend money since they can see the flow. Over these 14 years that we have been operating, we have been able to build quality data, which is one of the biggest challenges the lending industry has: ensuring that the data that banks have is truly quality data that can be used to make the right decisions when it comes to lending. If the credit bureaus in Nigeria work as they should, this will also help. Many smaller companies want to borrow NGN1,000-5000, and how we analyze the data will therefore help in the situation of lending.
OSCAR ONYEMA Banks are highly regulated and it is almost the same amount of work for a large company to borrow NGN10,000 for two days as it would be for a small company. There are sources of data and a great deal of shadow banking going on today, and many people are not included as banks only cover 35 million people out of 180 million. Competition will enter and someone will be smart enough to find a way to use the alternative sources of data to provide financial services. From the capital market perspective, there are many people looking at these things and for us to be truly resilient and sustainable in the long run, we have to adjust our business model and take advantage of these unofficial sources of information in addition to the official sources to reach people and find alternative ways to provide the financing they need.
What challenges will emerge as a result of non-banking institutions providing lending services?
TAYO OVIOSU Collaboration will be key because on the one hand, fintechs with access to data could use it to provide small loans for people. Our view is the best way to do it is to work with banks to figure out how they can change their structures to reduce regulations so that they can lend through platforms rather than trying to figure out how to do everything by themselves. For example, the Central Bank of Nigeria now has rules on microloans and gives banks targets on micro lending; however, the processes and requirements may not be as valid. What they could do is partner with lenders who lend on a micro level. We have built a platform that allows financial institutions to offer loans through us and we are about to launch with one bank a service where one will be able to go to an agent and apply for a loan that will not be on our balance sheet but on the bank's. This allows another path to the mass market by leveraging the distribution network that we have built and that is the kind of partnership that we want with banks so that we can combine our experience of reaching the masses with banks' financial muscle. We are also considering other institutions that may have MFB licenses but take non-collateralized loans and offer such loans to people as well. I see a great deal of potential for this and ways to offer lending services.